Of all the I-9 mistakes that can be made, one of the most pervasive is the complete absence of the form itself. If you have 100 employees (hired after November 6, 1986), you better have an I-9 for each one of those folks, or face the potential consequences in the event of an audit. Now if you’ve been diligent in your I-9 responsibilities, you probably have a pretty strict policy – no I-9, no paycheck. In many instances, that rule alone gets the job done.

But as companies are now keenly aware, the very nature of employment in the United States has been rapidly changing during the past few years – as employers large and small have tightened their belts, refocused their attentions, and ultimately reorganized their labor force.

As a result, tens of millions of Americans are now involved in some form of sporadic, non-traditional related job, whether it is called freelancing, temping, ubering, etc. In some instances, these individuals are clearly in business for themselves. There are, however, an increasing number of “gigs” which closely resemble traditional employment.

Which of course raises another potentially sticky I-9 problem for employers today – what if you are misclassifying your employees as independent contractors? What if you are actually a “joint employer” for purposes of completing the I-9?

The Fissured Workplace

Last month, David Weil, administrator of the Department of Labor’s Wage and Hour Division, issued guidance on the notoriously thorny issue of joint employment – an arrangement that the agency sees with even greater frequency these days. According to Mr. Weil, the employment relationship between workers and businesses in the U.S. has become “fissured” apart as companies seek to outsource certain non-core tasks to separate companies or individuals. For example, many hotel workers are not actually employed by the big brand name hotels but instead belong to staffing or outsourcing companies. The DOL believes this blurring of responsibilities has in many instances led to the deprivation of employee rights (particularly with respect to pay).

And the DOL has been quite busy investigating these complaints. According to Mr. Weil’s blog, a federal court recently decided that DirecTv was a joint employer of the installers hired by its contractor – a decision which resulted in $395,000 in back wages and damages for minimum wage and overtime violations. Shortly thereafter, the DOL announced a $2.1 million settlement in back wages and damages with J&J Snack Foods Corp, a company found to be jointly liable for overtime wage violations committed by the staffing companies it employed.

The DOL Guidance

So what does the DOL have to say about being a joint employer? And what impact (if any) will this guidance have on I-9 compliance? First, it’s important to note that the DOL guidance specifically pertains to two federal statutes: the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act. Both of these statutes contemplate that when an employee has two or more employers, the law will provide certain protections related to minimum wage, overtime pay, housing, transportation, etc. A finding of joint employment may thus expand the parties ultimately responsible for protecting US workers – as was demonstrated in the cases cited above.

The DOL’s new guidance explains that joint employment occurs in two ways: (1) horizontally, where an employee works for two or more employers who are sufficiently related to each other or (2) vertically, where an employee works for one company such as a staffing firm but is economically dependent on the staffing firm’s client. The guidance goes on to list a series of factors to consider for each type of relationship.

For example, let’s say you're in the restaurant business, and several of your managers actually work at different restaurants (each of which is its own legal entity). Are the managers jointly employed by the different restaurants? To figure out if horizontal employment exists, the DOL recommends that you look at the relationship of the restaurants to each other – are there overlapping functions and personnel, intermingled HR operations such as payroll, or schedule coordination? The greater the degree of association between the two entities, the more likely joint employment will be found.

Or let’s take another common scenario – nurses placed at a hospital by staffing agencies. Are the agencies and the hospital joint employers? In these potential vertical employment situations, the DOL states that you should look at the economic realities to determine if the employee is economically dependent on, and thus employed by, another entity involved in the work. Factors to consider include whether the potential joint employer has the power to modify employment conditions, the permanency and duration of the relationship, and whether the employee’s work is an integral part of the potential joint employer’s business to name a few.

The I-9 Conundrum

Which brings us back to our main quandary – do employers need to conduct this same joint employment analysis to determine if they need to complete an I-9 for these fissured workers? As with many things I-9 related, the answer is clear as mud.

But let’s start with what we know. As mentioned above, the DOL guidance specifically pertains to the FLSA and the MSPA statutes, both of which have very expansive definitions of employment. The I-9 regulations, on the other hand, specifically exempt “independent contractors” which are defined as “individuals or entities that carry on independent business, contract to do a piece of work according to their own means and methods, and are subject to control only as to results.” Among the factors to be considered are whether the individual supplies the tools or materials, makes services available to the public, works for different clients at the same time, directs the order or sequence in which the work is to be done, and determines the hours in which the work will be done. 8 C.F.R. § 274a.1(j).     

But wait, there’s more! In order to determine whether an individual is an independent contractor or an employee for I-9 purposes, the courts will also look at principles of agency law discussed in federal cases involving…you guessed it, the FLSA and MPSA statutes (the very same laws summarized in the DOL’s recent guidance). Just last year, the Office of the Chief Administrative Hearing Officer released a lengthy decision on joint employment (US v. Saidabror Siddikov D/B/A Beyond Cleaning Services) where the judge analyzed a potential joint employment arrangement by looking not only at the regulations but also at a variety of factors including the “economic realities” test mentioned above. Ultimately, the court sided with the employer and found no joint employment exists; however, in the process, the administrative law judge noted quite clearly that we do not “live in a binary world,” cautioning that there may be many employment situations where an employee could easily fall into the gray zone of joint employment for I-9 purposes.

The Union Complication

To make matters more interesting, many of these so-called “gig workers” across the United States have been joining together to protest what they consider to be unfair labor practices – which creates even more pressure on businesses engaged in staffing, franchising, or sub-contracting in general. This movement follows on the heels of the surprising Browning-Ferris NLRB case last year, which expanded the potential scope of joint employment to include those companies who exercise indirect control of employment conditions (or even merely have the authority to do so).  The company is appealing the decision, and the ultimate result could have far-reaching implications.

Lessons Learned for I-9 Compliance

As hiring practices continue to evolve, employers must pay very close attention to the issue of joint employment – particularly with respect to the all-important I-9 obligation. Here are 5 strategies to consider in making this important determination:

1. Consult with labor and employment counsel – if you can’t tell already, this area of compliance is highly nuanced and fact specific. Employers, with the assistance of counsel, must carefully analyze their workforce to determine if individuals should be more properly classified as employees (vs. independent contractors) using the regulatory definition and various factors mentioned above.
2. Document your decision – once a determination has been made, attorneys recommend that you carefully document your reasons for classifying workers as employees vs. independent contractors and communicate this information to the appropriate hiring staff in your organization.
3. Manage the Process – if your organization jointly employs individuals (either horizontally or vertically), you’ll want to consider the best method to manage the creation of I-9s and E-Verify (as required). Many employers in the hospitality, healthcare, and staffing industries are choosing a smart electronic I-9 system which has the ability to manage co-employment arrangements with advanced access controls and dashboards.
4. Prepare for the audit – it’s not uncommon for ICE to request I-9s for all individuals (i.e., all warm bodies) at a particular site, regardless of how your organization may have classified them. Employers must be prepared to explain why they do not have (and are not able to present) I-9s for those workers who are not employees of the organization.
5. Remember the bigger picture - I-9 compliance should never be considered in a vacuum – any decisions you ultimately make regarding whether or not to I-9 an individual may also greatly expand your liability with respect to other employment obligations (pay, overtime, leave, etc.).

And this, my friends, is why we frequently refer to the I-9 compliance process as a walking of the tightrope…